Is Alan Blinder a Protectionist?

Washington Post columnist E.J. Dionne is a decent person, whose views on many issues I share, but his column today is almost a caricature. It perfectly demonstrates why liberals/progressives are so lost on economic policy.

Dionne notes the collapse of good-paying jobs in the auto industry, the manufacturing sector, and increasingly other sectors due to trade and outsourcing. He then cites a recent article by Princeton University professor and former Fed Vice-Chairman Alan Blinder (identified as "no protectionist") warning that the trend toward declining wages due to competition with the developing world is likely to spread to more sectors in the future. The implicit question that Dionne then poses is "how can we maintain middle class living standards without being hoary protectionists?"

The answer of course is that Alan Blinder, Bill Clinton and the other "free traders" referred to in the article are in fact protectionists. They just don't own up to it. The competition that our manufacturing workers face from low-paid workers in the developing world is the result of trade policies that were explicitly designed to place them in competition with workers in the developing world. Trade pacts like NAFTA did not just reduce tariff barriers (these were already low) they established a whole set of rules that made it very simple and secure for U.S. corporations to set up manufacturing operations in developing countries and to ship their products back to the United States.

Instead of placing U.S. manufacturing workers in direct competition with low-wage workers in the developing world, our trade negotiators could have designed trade pacts that placed doctors, lawyers, economists and others in the highest paid professions in direct competition with workers in the developing world. This would mean standardizing licensing and education requirements so that smart kids in Mexico, India, and China could train to work as doctors in the United States just as do kids in New York or Los Angeles. (We can tax the earnings of professionals from developing country professionals working in the United States. Sending this revenue back to the country of origin would allow them to train 2-3 professionals for every 1 that works in the U.S., thereby reversing the "brain drain.")

This pattern of trade would have two effects. First, there would be enormous gains from trade as the price of medical care and other services provided by highly paid professionals plummeted, raising living standards for all but those in the directly affected professions. Second, this pattern of trade would lead to increased equality rather than increasing inequality.

But, the designers of U.S. trade policy (both Democrats and Republicans) chose not to go this route. While they profess to be free-traders, they are in fact protectionists when it comes to the jobs of people in the highest paying professions. Until people like E.J. Dionne can recognize such basic facts, it will be difficult to design economic policies that benefit broad segments of the population.